the paucity of fed enforcement actions leading to …agencies, mortgage brokers, and others. actions...
TRANSCRIPT
The paucity of Fed enforcement actions leading to the
subprime mortgage crisis
Abstract
The global economic near meltdown that began manifesting itself in 2007 was the
result of a multitude of factors. A significant part of the overall economic debacle was the
failure of the debt market. The Final Report of the National Commission on the Causes of
the Financial and Economic Crisis in the United States concluded, among other iss
that “the financial crisis was avoidable” (p
regulation and supervision proved devastating to the stability of the nation’s financial
markets” (ibid, p xviii).
Engel and McCoy (2011) note that “the Fed
most power to regulate home mortgages” because “Congress invested the Fed with the
sole authority to police abuses across the entire mortgage market, including banks and
thrifts, nonbank lenders, and mortgage brokers” (p 1
the regulations that were then in existence, it may have resulted in (a) curbing corporate
greed; (b) avoiding the often malfeasant lowering of credit standards; and (c) preventing
the violation of the public trust by
agencies, mortgage brokers, and others.
actions from 2001 to March, 2012
failed in its duty to properly enfo
ameliorated, the debt crisis that almost destroyed the U.S
Key words: Subprime mortgage lending, Fed enforcement actions, moral hazard,
Greenspan’s philosophy.
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
The paucity of Fed enforcement actions leading to the
subprime mortgage crisis
Khalid A. Razaki
Dominican University
Wayne Koprowski
Dominican University
The global economic near meltdown that began manifesting itself in 2007 was the
of a multitude of factors. A significant part of the overall economic debacle was the
failure of the debt market. The Final Report of the National Commission on the Causes of
the Financial and Economic Crisis in the United States concluded, among other iss
ncial crisis was avoidable” (p xvii) and that “widespread failures in financial
regulation and supervision proved devastating to the stability of the nation’s financial
Engel and McCoy (2011) note that “the Fed [Federal Reserve Board] had the
most power to regulate home mortgages” because “Congress invested the Fed with the
sole authority to police abuses across the entire mortgage market, including banks and
thrifts, nonbank lenders, and mortgage brokers” (p 189). If the Fed had properly enforced
the regulations that were then in existence, it may have resulted in (a) curbing corporate
greed; (b) avoiding the often malfeasant lowering of credit standards; and (c) preventing
the violation of the public trust by bank managements, mortgage securitizers, rating
agencies, mortgage brokers, and others. This study analyzed all the Fed enforcement
actions from 2001 to March, 2012. The analysis lends credence to the claim that the Fed
failed in its duty to properly enforce regulations that may have prevented, or at least
ameliorated, the debt crisis that almost destroyed the U.S., and global banking sectors.
Key words: Subprime mortgage lending, Fed enforcement actions, moral hazard,
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 1
The paucity of Fed enforcement actions leading to the
The global economic near meltdown that began manifesting itself in 2007 was the
of a multitude of factors. A significant part of the overall economic debacle was the
failure of the debt market. The Final Report of the National Commission on the Causes of
the Financial and Economic Crisis in the United States concluded, among other issues,
xvii) and that “widespread failures in financial
regulation and supervision proved devastating to the stability of the nation’s financial
[Federal Reserve Board] had the
most power to regulate home mortgages” because “Congress invested the Fed with the
sole authority to police abuses across the entire mortgage market, including banks and
89). If the Fed had properly enforced
the regulations that were then in existence, it may have resulted in (a) curbing corporate
greed; (b) avoiding the often malfeasant lowering of credit standards; and (c) preventing
bank managements, mortgage securitizers, rating
nforcement
lends credence to the claim that the Fed
rce regulations that may have prevented, or at least
, and global banking sectors.
Key words: Subprime mortgage lending, Fed enforcement actions, moral hazard,
Introduction
The global economic near meltdown that began manifesting itself in 2007 was the
result of a multitude of factors. A significant part of the overall economic debacle was the
failure of the debt market. The Final Report of the National Commission on the
the Financial and Economic Crisis in the United States concluded, among other issues,
that “the financial crisis was avoidable” (p
financial regulation and supervision proved devastating to the stability o
financial markets” (ibid, p. xviii).
Engel and McCoy (2011) note that “the Fed [Federal Reserve Board]
most power to regulate home mortgages” because “Congress invested the Fed with the
sole authority to police abuses across the
thrifts, nonbank lenders, and mortgage brokers” (p 189). If the Fed had properly enforced
the regulations that were then in existence, it may have resulted in (a) curbing corporate
greed; (b) avoiding the often
the violation of the public trust by bank managements, mortgage securitiz
rating agencies, mortgage brokers, and others.
An analysis of Fed enforcement actions from 2001 to March, 2
claim that the Fed failed in its duty to properly enforce regulations that may have
prevented, or at least ameliorated, the debt crisis that almost destroyed the U.S, and
global banking sectors.
Fed Chairman Greenspan’s
banking crisis
It is instructive to study the political and economic philosophy of Alan
Greenspan, former Chairman of the Fed. He was a dominant for
when Fed actions (or lack thereof) cr
Engel and McCoy (2011) observed that Chairman Greenspan was averse to regulation.
This aversion to intrusive actions by the government to regulate the debt markets was
grounded in his philosophical roo
physical nature), Adam Smith (the invisible hand doctrine), Joseph Schumpeter (creative
destruction), and Ayn Rand (logical positivism and radical individualism) (p 189).
Greenspan believed in “flexibi
believed that deregulation was
example of this antipathy to regulation of markets was his position on increasing federal
deposit insurance (FDI). Economic history had demonstrated the efficacy of FDI in
halting bank runs. But the downside to FDI is the risk of moral hazard. FDI encourages
banks to take on unreasonable risks because they can retain the profits if the scheme
works out, but the federal government would absorb the losses if it does not, thus
enjoying the best of both worlds. Many economists argue that the government must
regulate banks to counteract the moral hazard involved in FDI. Greenspan opposed
government intervention based on his b
hazard worse by discouraging personal integrity and lulling bankers and depositors into
complacency about instituting precautions to ensure a bank’s safety” (ibid p 191).
However, he failed to fully appreciate
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
The global economic near meltdown that began manifesting itself in 2007 was the
result of a multitude of factors. A significant part of the overall economic debacle was the
failure of the debt market. The Final Report of the National Commission on the
the Financial and Economic Crisis in the United States concluded, among other issues,
that “the financial crisis was avoidable” (p. xvii) and that “widespread failures in
financial regulation and supervision proved devastating to the stability of the nation’s
xviii).
Engel and McCoy (2011) note that “the Fed [Federal Reserve Board]
most power to regulate home mortgages” because “Congress invested the Fed with the
sole authority to police abuses across the entire mortgage market, including banks and
thrifts, nonbank lenders, and mortgage brokers” (p 189). If the Fed had properly enforced
the regulations that were then in existence, it may have resulted in (a) curbing corporate
greed; (b) avoiding the often malfeasant lowering of credit standards; and (c) preventing
the violation of the public trust by bank managements, mortgage securitization entities
rating agencies, mortgage brokers, and others.
An analysis of Fed enforcement actions from 2001 to March, 2012 lends credence to the
claim that the Fed failed in its duty to properly enforce regulations that may have
prevented, or at least ameliorated, the debt crisis that almost destroyed the U.S, and
Fed Chairman Greenspan’s philosophy regarding FRB enforcement during the
It is instructive to study the political and economic philosophy of Alan
Greenspan, former Chairman of the Fed. He was a dominant force during the period
Fed actions (or lack thereof) created the environment that led to the banking crisis.
Engel and McCoy (2011) observed that Chairman Greenspan was averse to regulation.
This aversion to intrusive actions by the government to regulate the debt markets was
grounded in his philosophical roots traceable to John Locke (individualism in a hostile
physical nature), Adam Smith (the invisible hand doctrine), Joseph Schumpeter (creative
destruction), and Ayn Rand (logical positivism and radical individualism) (p 189).
Greenspan believed in “flexibility”, which was a code word for “deregulation”. He
believed that deregulation was the Ford administration’s great unsung achievement. One
example of this antipathy to regulation of markets was his position on increasing federal
onomic history had demonstrated the efficacy of FDI in
halting bank runs. But the downside to FDI is the risk of moral hazard. FDI encourages
banks to take on unreasonable risks because they can retain the profits if the scheme
government would absorb the losses if it does not, thus
enjoying the best of both worlds. Many economists argue that the government must
regulate banks to counteract the moral hazard involved in FDI. Greenspan opposed
government intervention based on his belief that “bank regulation would make moral
hazard worse by discouraging personal integrity and lulling bankers and depositors into
complacency about instituting precautions to ensure a bank’s safety” (ibid p 191).
However, he failed to fully appreciate basic human greed in the name of profits.
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 2
The global economic near meltdown that began manifesting itself in 2007 was the
result of a multitude of factors. A significant part of the overall economic debacle was the
failure of the debt market. The Final Report of the National Commission on the Causes of
the Financial and Economic Crisis in the United States concluded, among other issues,
xvii) and that “widespread failures in
f the nation’s
Engel and McCoy (2011) note that “the Fed [Federal Reserve Board] had the
most power to regulate home mortgages” because “Congress invested the Fed with the
entire mortgage market, including banks and
thrifts, nonbank lenders, and mortgage brokers” (p 189). If the Fed had properly enforced
the regulations that were then in existence, it may have resulted in (a) curbing corporate
malfeasant lowering of credit standards; and (c) preventing
ation entities,
012 lends credence to the
claim that the Fed failed in its duty to properly enforce regulations that may have
prevented, or at least ameliorated, the debt crisis that almost destroyed the U.S, and
philosophy regarding FRB enforcement during the
It is instructive to study the political and economic philosophy of Alan
ce during the period
led to the banking crisis.
Engel and McCoy (2011) observed that Chairman Greenspan was averse to regulation.
This aversion to intrusive actions by the government to regulate the debt markets was
ts traceable to John Locke (individualism in a hostile
physical nature), Adam Smith (the invisible hand doctrine), Joseph Schumpeter (creative
destruction), and Ayn Rand (logical positivism and radical individualism) (p 189).
word for “deregulation”. He
unsung achievement. One
example of this antipathy to regulation of markets was his position on increasing federal
onomic history had demonstrated the efficacy of FDI in
halting bank runs. But the downside to FDI is the risk of moral hazard. FDI encourages
banks to take on unreasonable risks because they can retain the profits if the scheme
government would absorb the losses if it does not, thus
enjoying the best of both worlds. Many economists argue that the government must
regulate banks to counteract the moral hazard involved in FDI. Greenspan opposed
elief that “bank regulation would make moral
hazard worse by discouraging personal integrity and lulling bankers and depositors into
complacency about instituting precautions to ensure a bank’s safety” (ibid p 191).
basic human greed in the name of profits.
Greenspan was also enamored
arching goal was to replace the historical command
with Fed oversight aimed at bolstering priva
crucial regard, his mission was to minimize government oversight of banks by
outsourcing risk management to banks, a situation akin to the fox watching the hen
house. He was fully aware of the catastrophic risks assoc
management by lending institutions, as evidenced by the 1980s savings and loans crisis,
but believed that the advances in risk management techniques and the availability of
more relevant data would prevent banks from repeating t
he called private risk management a “revolution” with “real potential” for reducing
lending booms and busts (ibid p 192). He lauded mortgage
collateralized debt obligations, and credit default swaps for
largest and most sophisticated banks to divest themselves of much credit risk by passing
it out to institutions like insurance companies, pension funds, and hedge companies (ibid
p 192). Actual events proved him wrong on all
Some causes of the subprime debacle
Schmudde (2009) has argued “Federal Reserve Board was empowered by
Congress in 1994 to regulate mortgage issues, but chose instead to watch from the
sidelines while a bubble was created. When a bubble is formi
in a Ponzi scheme, nobody gets hurt. Then, as the bubble accelerates, there is a necessary
reckoning – the collapse of prices.”
describe why the increases in home values were sustain
irresponsibility. A confluence of regulatory neglect, a deviation from proven standards
and aggressive development of new financial markets collided
financial wreckage” (Ibid).
A review of the literature
produced a plethora of causes for the subprime crisis. The list includes:
• Regulatory failure
• Fannie Mae and Freddie Mac
• Federal government policies encouraging greater home ownership
• Creation of risky novel financial products
• Undercapitalization of banks
• Undercapitalization of insurance companies related to mortgage loans
• Bank management greed
• Investment bankers greed
• Unscrupulous and greedy r
• Transfer of default risk from
• Automated risk measurement systems without human involvement
• Shoddy sales practices by mortgage lenders and brokers
• Lowering of risk standards by mortgage lenders
• Inadequate risk measurement and reporting by independent auditors
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
enamored with the notions of private risk management. His over
arching goal was to replace the historical command-and-control model of bank regulation
with Fed oversight aimed at bolstering private risk management by bankers. In this
crucial regard, his mission was to minimize government oversight of banks by
outsourcing risk management to banks, a situation akin to the fox watching the hen
house. He was fully aware of the catastrophic risks associated with unregulated risk
management by lending institutions, as evidenced by the 1980s savings and loans crisis,
but believed that the advances in risk management techniques and the availability of
more relevant data would prevent banks from repeating the mistakes of the past. In fact,
he called private risk management a “revolution” with “real potential” for reducing
lending booms and busts (ibid p 192). He lauded mortgage-backed securities,
collateralized debt obligations, and credit default swaps for their potential of allowing the
largest and most sophisticated banks to divest themselves of much credit risk by passing
it out to institutions like insurance companies, pension funds, and hedge companies (ibid
p 192). Actual events proved him wrong on all counts.
Some causes of the subprime debacle
Schmudde (2009) has argued “Federal Reserve Board was empowered by
Congress in 1994 to regulate mortgage issues, but chose instead to watch from the
sidelines while a bubble was created. When a bubble is forming and prices are rising, as
in a Ponzi scheme, nobody gets hurt. Then, as the bubble accelerates, there is a necessary
the collapse of prices.” He asserts “New rationales were developed to
describe why the increases in home values were sustainable. This is a tale of greed and
irresponsibility. A confluence of regulatory neglect, a deviation from proven standards
and aggressive development of new financial markets collided resulting in an
ature, limited to only the articles cited in the references,
produced a plethora of causes for the subprime crisis. The list includes:
Fannie Mae and Freddie Mac
Federal government policies encouraging greater home ownership
risky novel financial products
Undercapitalization of banks
Undercapitalization of insurance companies related to mortgage loans
Bank management greed
Investment bankers greed
Unscrupulous and greedy real estate speculators
of default risk from banks to investors
Automated risk measurement systems without human involvement
Shoddy sales practices by mortgage lenders and brokers
Lowering of risk standards by mortgage lenders
Inadequate risk measurement and reporting by independent auditors
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 3
the notions of private risk management. His over-
control model of bank regulation
te risk management by bankers. In this
crucial regard, his mission was to minimize government oversight of banks by
outsourcing risk management to banks, a situation akin to the fox watching the hen
iated with unregulated risk
management by lending institutions, as evidenced by the 1980s savings and loans crisis,
but believed that the advances in risk management techniques and the availability of
he mistakes of the past. In fact,
he called private risk management a “revolution” with “real potential” for reducing
backed securities,
their potential of allowing the
largest and most sophisticated banks to divest themselves of much credit risk by passing
it out to institutions like insurance companies, pension funds, and hedge companies (ibid
Schmudde (2009) has argued “Federal Reserve Board was empowered by
Congress in 1994 to regulate mortgage issues, but chose instead to watch from the
ng and prices are rising, as
in a Ponzi scheme, nobody gets hurt. Then, as the bubble accelerates, there is a necessary
New rationales were developed to
able. This is a tale of greed and
irresponsibility. A confluence of regulatory neglect, a deviation from proven standards
an epochal
limited to only the articles cited in the references,
Undercapitalization of insurance companies related to mortgage loans
• Outdated mortgage lending system
• Unscrupulous real estate agents with relationships with risky lenders and
mortgage brokers
• Unscrupulous real estate appraisers
• A large number of unwary
• Credit rating agency malfeasance
Brief history of regulation of the subprime crisis
It is now universally recognized that the failure of regulatory agencies to prevent
financial fraud, malfeasance, and incompetence by lenders was a major cause of the 2008
global economic crisis. This failu
Street Reform and Consumer Act
responsibilities and failures of the
Razaki et al (2010) have noted that t
many as eight federal agencies responsible for regulating the banking industry.
in addition to all the state regulators who monitor the banks
Some of the important regulators include the Federal Re
the Controller of the Currency (OCC), the Office of Thrift Supervision, and the Federal
Trade Commission (FTC). Further
(SEC) does not directly oversee
mortgage backed securities (“MBS
investment banks.
Beginning in the 1980’s, Congress and the bank regulators, most noticeably the
FRB, the OCC and the OTC, began reduc
federally chartered banks and thrifts
allowed state chartered lenders
instruments, like adjustable rate
proactive government policy of lifting strict statutory constraints on mortgage lending in
favor of transferring critical decisions on lending policies and pr
management (Ibid p 156). This policy
stated rationale for this uncharacteristic
rates of home ownership, especially
borrowers, which was considered
While the federal agencies were adopting a policy of deferring to bankers
lenders the discretion to determine
introducing innovative, but highly
“Guidance” replaced previously accepted r
ratios, objective appraisals and analysis of borrower creditworthiness
left with a vague and amorphous
products and practices.” Given the potential for substantial profits, the
risk” lending environment providing
to avoid unsafe and unsound loans was often ignored by loan origina
to maximize their profits (Di Lorenzo, p 178)
Cox (2009) has pointed out that
but that other arms of the federal government w
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
d mortgage lending system
Unscrupulous real estate agents with relationships with risky lenders and
Unscrupulous real estate appraisers
unwary or naïve home buyers
Credit rating agency malfeasance
regulation of the subprime crisis
It is now universally recognized that the failure of regulatory agencies to prevent
feasance, and incompetence by lenders was a major cause of the 2008
failure resulted in the passage of the 2010 Dodd
Street Reform and Consumer Act (Razaki et al 2010). This section will discuss
responsibilities and failures of the Fed, the primary bank regulator.
Razaki et al (2010) have noted that there are no fewer than five and, perhaps,
many as eight federal agencies responsible for regulating the banking industry.
in addition to all the state regulators who monitor the banks that hold a state charter
regulators include the Federal Reserve Board (FRB), the Office of
the Controller of the Currency (OCC), the Office of Thrift Supervision, and the Federal
Further, while the Securities and Exchange Commission
directly oversee banking activities, it does regulate “securities,”
ed securities (“MBS’s”) which may be offered by banks, including
Beginning in the 1980’s, Congress and the bank regulators, most noticeably the
RB, the OCC and the OTC, began reducing statutory and regulatory requirements for
federally chartered banks and thrifts (Di Lorenzo, 2009, p 155). In addition, Congress
chartered lenders to offer non-traditional, alternative borrowing
ate mortgages (ARM's), to consumers. The end
proactive government policy of lifting strict statutory constraints on mortgage lending in
decisions on lending policies and products to bank
This policy increased the likelihood of moral hazard. The
rationale for this uncharacteristic laissez-faire government policy was to increase
rates of home ownership, especially for otherwise unqualified low income and minority
considered a distinct societal benefit (Ibid p 156).
federal agencies were adopting a policy of deferring to bankers
the discretion to determine loan acceptance standards, mortgage lenders were
highly risky loan products like ARM’s and MBS’s.
“Guidance” replaced previously accepted regulatory standards such as loan-to
, objective appraisals and analysis of borrower creditworthiness. Bank lenders were
and amorphous mandate “to avoid unsafe and unsound mortgage
products and practices.” Given the potential for substantial profits, the emerging
providing little or no accountability for bad loans, the mandate
to avoid unsafe and unsound loans was often ignored by loan originators who sought only
(Di Lorenzo, p 178).
has pointed out that federal regulators not only adopted a “hands off” policy,
the federal government were proactive in interfering with and
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 4
Unscrupulous real estate agents with relationships with risky lenders and
It is now universally recognized that the failure of regulatory agencies to prevent
feasance, and incompetence by lenders was a major cause of the 2008
the passage of the 2010 Dodd-Frank Wall
discuss the
, perhaps, as
many as eight federal agencies responsible for regulating the banking industry. These are
that hold a state charter.
serve Board (FRB), the Office of
the Controller of the Currency (OCC), the Office of Thrift Supervision, and the Federal
, while the Securities and Exchange Commission
es regulate “securities,” such as
which may be offered by banks, including
Beginning in the 1980’s, Congress and the bank regulators, most noticeably the
requirements for
, Congress
traditional, alternative borrowing
result was a
proactive government policy of lifting strict statutory constraints on mortgage lending in
oducts to bank
moral hazard. The
government policy was to increase
low income and minority
federal agencies were adopting a policy of deferring to bankers and
lenders were
M’s and MBS’s.
to-value
ank lenders were
mortgage
emerging “no
little or no accountability for bad loans, the mandate
who sought only
federal regulators not only adopted a “hands off” policy,
proactive in interfering with and
obstructing investigations of unsafe lending practices by various state attorneys general.
The OCC, in particular, actively promulgated rules claiming
exclusive right “to investigate and enforce violations of state consumer protection
This usurpation of regulatory powers
mortgage loan terms for homeowners (
been perfectly predicted by any rational economic decision maker
the two primary bank regulators, the FRB and the OCC, took
ameliorate the abusive subprime mortgage lending
Furthermore, the federal interference in the prevention and
enforcement actions, combined
environment rife for abuse by mortgage lenders (
situation worse, in the 1990’s, there was a proliferation of non
objective was to originate loans, which were then packaged and sold as MBS’s to
Unwary investors. The end result was that there was
supervise these entities that cared little for moral hazard exploitation
(2009) concluded “A striking feature of the growth in subprime mortgage origination was
the rise of lending channels outside the depository institutions (banks) called ‘non
lenders.’ Up to now, there was very limited oversight of these non
292). Because of this glaring lapse
maximizing, and in some cases “unscrupulous” lenders, became more than a distinct
possibility.
Relevant Lending Laws and Regulations
There is a plethora of
prospective homeowners. Some of the more notable laws include: The Truth in Lending
Act (TILA); the Home Ownership and Equity Protection Act (HOEPA); the Fair Credit
Reporting Act (FCRA); the Equal Cred
Settlement Procedures Act (RESPA); the Gramm
Federal Trade Commission Act (FTC Act)
Cox (2009) has summarized the
protection, especially governing mortgage loan origination
following categories:
1. Disclosure requirements: Lenders
to borrowers concerning their loans. Some of these disclosures
information concerning the total cost of the credit in the form of an annual
percentage rate, the total of payments, whether the loan contains a prepayment
penalty. Other provisions include “good faith disclosure” which requires listing
the costs incurred by the borro
is the most notable of the disclosure laws, in particular Regulation Z of that Act.
But TILA was only creat
focused on content, quantity and quality of infor
than focusing on imposing substantive prohibitions on lending
to consumers (Maman, 2008, p 215)
2. Restrictions on the Terms of Mortgage Loans: Substantive restrictions on the
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
obstructing investigations of unsafe lending practices by various state attorneys general.
The OCC, in particular, actively promulgated rules claiming that it possessed
exclusive right “to investigate and enforce violations of state consumer protection
of regulatory powers effectively preempted state laws that limited unfair
gage loan terms for homeowners (ibid p 279). The perfect storm, that could have
by any rational economic decision maker, was thus created when
the two primary bank regulators, the FRB and the OCC, took almost no action
subprime mortgage lending practices created by lenders
federal interference in the prevention and suppression of state
combined with lax or non-existent federal oversight led to
for abuse by mortgage lenders (Ibid p 300). To make an already risky
situation worse, in the 1990’s, there was a proliferation of non-bank lenders, whose main
objective was to originate loans, which were then packaged and sold as MBS’s to
The end result was that there was very limited federal regulat
that cared little for moral hazard exploitation (Ibid p 292)
(2009) concluded “A striking feature of the growth in subprime mortgage origination was
the rise of lending channels outside the depository institutions (banks) called ‘non
lenders.’ Up to now, there was very limited oversight of these non-bank lenders” (ibid p
glaring lapse in the regulatory scheme, abuses by profit
maximizing, and in some cases “unscrupulous” lenders, became more than a distinct
Lending Laws and Regulations
is a plethora of laws that lenders must comply with in providing loans to
prospective homeowners. Some of the more notable laws include: The Truth in Lending
Act (TILA); the Home Ownership and Equity Protection Act (HOEPA); the Fair Credit
Reporting Act (FCRA); the Equal Credit Opportunity Act (ECOA); the Real Estate
Settlement Procedures Act (RESPA); the Gramm-Leach-Bliley Act (GLBA); and
Trade Commission Act (FTC Act).
has summarized the laws that focused primarily on consumer
governing mortgage loan origination. These are groupe
Disclosure requirements: Lenders must disclose relevant and material information
to borrowers concerning their loans. Some of these disclosures include
rning the total cost of the credit in the form of an annual
percentage rate, the total of payments, whether the loan contains a prepayment
penalty. Other provisions include “good faith disclosure” which requires listing
the costs incurred by the borrower in taking out the mortgage (Cox, p 285)
is the most notable of the disclosure laws, in particular Regulation Z of that Act.
created as a consumer cost disclosure act and was primarily
focused on content, quantity and quality of information given to consumers rather
on imposing substantive prohibitions on lending practices harmful
to consumers (Maman, 2008, p 215).
Restrictions on the Terms of Mortgage Loans: Substantive restrictions on the
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 5
obstructing investigations of unsafe lending practices by various state attorneys general.
that it possessed the
exclusive right “to investigate and enforce violations of state consumer protection laws.
effectively preempted state laws that limited unfair
, that could have
created when
no actions to
created by lenders.
suppression of state
led to an
. To make an already risky
, whose main
objective was to originate loans, which were then packaged and sold as MBS’s to.
federal regulation to
p 292). Cox
(2009) concluded “A striking feature of the growth in subprime mortgage origination was
the rise of lending channels outside the depository institutions (banks) called ‘non-bank
enders” (ibid p
in the regulatory scheme, abuses by profit
maximizing, and in some cases “unscrupulous” lenders, became more than a distinct
lenders must comply with in providing loans to
prospective homeowners. Some of the more notable laws include: The Truth in Lending
Act (TILA); the Home Ownership and Equity Protection Act (HOEPA); the Fair Credit
it Opportunity Act (ECOA); the Real Estate
Bliley Act (GLBA); and, the
consumer
grouped into the
disclose relevant and material information
include
rning the total cost of the credit in the form of an annual
percentage rate, the total of payments, whether the loan contains a prepayment
penalty. Other provisions include “good faith disclosure” which requires listing
n taking out the mortgage (Cox, p 285). TILA
is the most notable of the disclosure laws, in particular Regulation Z of that Act.
was primarily
mation given to consumers rather
practices harmful
Restrictions on the Terms of Mortgage Loans: Substantive restrictions on the
costs and terms of residential
regulatory scheme (Cox p 286)
practices that contributed to the moral hazard.
practices that emerged included
1. Adjustable rate mortgages (ARM’s), which featured low initial rates
rates”);
2. Payment options plans in which the borrower could choose an amount to pay,
including the possibility of a minimum payment that did not include accrued
interest;
3. Loans made without
limited documentation or no documentation (“stated income”); and
4. Loans made requiring very litt
These products and lending practices provided otherwise unqualified borrowers
with the unprecedented opportunity to own a piece of the American dream
ownership. ARM’s promised borrowers a low initial rate
165). These rates were later adjusted upward increasing monthly payments b
50% in some cases (Ibid p 166)
documentation was required
income level. Lenders accept
indicated, a practice that became known as
mortgage industry. As lending
pretend to inquire about a borrower’s income or assets,
as “no income, no assets.”
Razaki et al (2010) have posited that
borrowers had little or no equity in the home they were purchasing, lenders were also
underwriting loans with no regard to a prospective borrower’s ability to repay the loan.
The Fed corrected this unsafe practice by issuing regulations in 2009 pursuant to the
Home Ownership and Equity Protection Act (“HOEPA”). HOEPA and the F
regulations prohibit loans which are
repay the loan. However, as argued
“high-priced mortgage loans.” In
borrower’s ability to repay (ibid p 179)
that “prudent underwriting standards ‘should include an evaluation of a borrower’s ability
to repay the ... loan,’ the guidance did not prohibit stated income o
documentation loans” (ibid p 161)
retain the ability to evaluate the quality of loans [creditworthiness of borrowers] in their
sole discretion.
Categories of Fed enforcement actions
The authors analyzed all
March 2012, in order to determine what, if anything, the Fed was doing about mortgage
lending abuses (see the Appendix
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
costs and terms of residential loans were less prominent in the mortgage lending
regulatory scheme (Cox p 286). This lack of regulatory oversight fostered lending
practices that contributed to the moral hazard. Risky mortgage products and
emerged included:
rate mortgages (ARM’s), which featured low initial rates
ayment options plans in which the borrower could choose an amount to pay,
including the possibility of a minimum payment that did not include accrued
oans made without regard to the borrower’s ability to repay, including
limited documentation or no documentation (“stated income”); and
oans made requiring very little or no borrower equity (Di Lorenzo, p 165)
products and lending practices provided otherwise unqualified borrowers
opportunity to own a piece of the American dream, that is,
ownership. ARM’s promised borrowers a low initial rate on home loans (Di Lorenzo, p
rates were later adjusted upward increasing monthly payments b
166). Lenders further engaged in practices in which little or no
documentation was required from prospective borrowers concerning borrower assets or
level. Lenders accepted whatever income level the prospective borrower
that became known as “stated income,” or “liar’s loans” within the
. As lending standards declined, lenders eventually did not even
about a borrower’s income or assets, but engaged in a practice
Razaki et al (2010) have posited that In addition to writing loans in which
equity in the home they were purchasing, lenders were also
regard to a prospective borrower’s ability to repay the loan.
corrected this unsafe practice by issuing regulations in 2009 pursuant to the
uity Protection Act (“HOEPA”). HOEPA and the F
which are made without regard to the borrower’s ability to
argued by Di Lorenzo (2009), these regulations apply only to
priced mortgage loans.” In addition, there was no clear standard that defined
borrower’s ability to repay (ibid p 179). While government agencies issued “guidance”
that “prudent underwriting standards ‘should include an evaluation of a borrower’s ability
he guidance did not prohibit stated income or reduced
documentation loans” (ibid p 161). In other words, it’s business as usual; lenders still
retain the ability to evaluate the quality of loans [creditworthiness of borrowers] in their
tegories of Fed enforcement actions
analyzed all 972 Fed enforcement actions taken from January 2001 to
in order to determine what, if anything, the Fed was doing about mortgage
Appendix which lists the date, the name of the bank, the state in
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 6
gage lending
. This lack of regulatory oversight fostered lending
ortgage products and
rate mortgages (ARM’s), which featured low initial rates (“teaser
ayment options plans in which the borrower could choose an amount to pay,
including the possibility of a minimum payment that did not include accrued
regard to the borrower’s ability to repay, including
limited documentation or no documentation (“stated income”); and
le or no borrower equity (Di Lorenzo, p 165).
products and lending practices provided otherwise unqualified borrowers
, that is, home
on home loans (Di Lorenzo, p
rates were later adjusted upward increasing monthly payments by as much as
engaged in practices in which little or no
prospective borrowers concerning borrower assets or
whatever income level the prospective borrower
,” or “liar’s loans” within the
not even
a practice known
In addition to writing loans in which
equity in the home they were purchasing, lenders were also
regard to a prospective borrower’s ability to repay the loan.
corrected this unsafe practice by issuing regulations in 2009 pursuant to the
uity Protection Act (“HOEPA”). HOEPA and the Fed
made without regard to the borrower’s ability to
, these regulations apply only to
addition, there was no clear standard that defined a
. While government agencies issued “guidance”
that “prudent underwriting standards ‘should include an evaluation of a borrower’s ability
In other words, it’s business as usual; lenders still
retain the ability to evaluate the quality of loans [creditworthiness of borrowers] in their
from January 2001 to
in order to determine what, if anything, the Fed was doing about mortgage
which lists the date, the name of the bank, the state in
which it is located, and the specific
enforcement action was brought).
Secondly, the authors intended to test a theory that the Fed had the authority under
existing laws and regulations to exercise enforcement actions relating to abusive lending
practices and policies, but failed to do so.
into the following major areas:
• Board Oversight
• Management Review
• Conflicts of Interest Policy
• Lending and Credit Administration
• Risk Management
• Asset Improvement
• Loan Policies, Procedures, and Administration
• Loan Review
• Staffing
• Capital Adequacy
• Affiliate Transactions
• Compliance with Laws and Regulations
• Dividends
• Business Plan and Budget
• Approval, Implementation, and Progress Reports
• Communications
• Portfolio Growth
• Loan Syndication
• Allowances for Loan and Lease Losses
• Audit
• Regulatory Reports
• Debt and Stock Redemption
After a thorough analysis of the nature of all Fed enf
and 2012, the following general categories were
which the Fed had regulatory authority
examination of 972 Fed enforcement actions between
reveals that these actions can be subdivided into the following categories. These General
Categories, and the total number of enforcement actions in each category, are:
• Real estate Loans (134
• Troubled Banks (477)
• Flood Losses (64)
• Board Oversight/Management Review
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
which it is located, and the specific loan related Fed category under which the
enforcement action was brought).
Secondly, the authors intended to test a theory that the Fed had the authority under
existing laws and regulations to exercise enforcement actions relating to abusive lending
practices and policies, but failed to do so. These enforcement actions can be categorized
into the following major areas:
Management Review
licts of Interest Policy
Lending and Credit Administration
Loan Policies, Procedures, and Administration
Affiliate Transactions
Compliance with Laws and Regulations
Plan and Budget
Approval, Implementation, and Progress Reports
Allowances for Loan and Lease Losses
Debt and Stock Redemption
After a thorough analysis of the nature of all Fed enforcement actions between 2001
and 2012, the following general categories were selected to explain what areas
which the Fed had regulatory authority, were actually getting the Fed’s attention. The
Fed enforcement actions between January 2001 and March
reveals that these actions can be subdivided into the following categories. These General
Categories, and the total number of enforcement actions in each category, are:
134)
)
Board Oversight/Management Review (84)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 7
Fed category under which the
Secondly, the authors intended to test a theory that the Fed had the authority under then
existing laws and regulations to exercise enforcement actions relating to abusive lending
can be categorized
orcement actions between 2001
to explain what areas, over
were actually getting the Fed’s attention. The
2001 and March 2012
reveals that these actions can be subdivided into the following categories. These General
Categories, and the total number of enforcement actions in each category, are:
Analysis of adequacy of Fed enforcement
It should be noted that each Fed enforcement action against a specific bank
focused on multiple, categories simultaneously, though changing from case to case.
Enforcement actions related to categories including board oversight, lending and credit
administration, loan policies, procedures and administration, asset improvement,
compliance with laws and regulations, and, allowances for loans and lease losses were
encountered frequently. Some enforcement action categories like loan syndication, debt
and stock redemption, and portfolio growth were involved in very few cases.
The banking crisis started manifesting itself in 2007. From 2001
clearly shows, the Fed enforcement actions related to troubled
Beginning in 2008, after the horses had already fled from the barn, these actions jumped
up considerably to 30 in 2009 and 34 in 2010
Study Conclusions
1. This study has provided empirical
negligent and nonfeasant at worst, in controlling the abuse
mortgage lenders that caused the subprime debacle.
mortgage lending abuses as early as 2001 (see Appendix).
and intentional ignoring
philosophical and political abhorrence of Chairman Alan Greenspan and some
Republican administrations to federal regulation. Another
ultimately destructive, cause was the federal government
goal of helping ordinary Americans in achieving the American Dream of home
ownership. A prime example of “no good deed goes unpunished.”
2. It was interesting to discover that mos
banks for lending deficiencies were small local or regional banks.
few large banks were sanctioned by the Fed (Bank of America, J.P. Morgan
Chase, Citigroup), the fact remains that many
(Washington Mutual,
radar screen.
3. The Fed had the authority under its charter to “regulate home mortgages,” but the
evidence is overwhelming that
4. On the surface the distribution of enforcement actions across the states seems
broad. However, while is difficult to draw any definitive conclusions concerning
the state distribution of lo
relevant period covered by t
Illinois (8), Montana (8), Ohio (7) and Missouri (7). Montana may simply be an
anomaly, but one can speculate about the other states. Many real estate
speculators may have been interested in Florida, while I
high percentages of lower income citizens.
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
Analysis of adequacy of Fed enforcement
It should be noted that each Fed enforcement action against a specific bank
focused on multiple, categories simultaneously, though changing from case to case.
actions related to categories including board oversight, lending and credit
administration, loan policies, procedures and administration, asset improvement,
compliance with laws and regulations, and, allowances for loans and lease losses were
requently. Some enforcement action categories like loan syndication, debt
and stock redemption, and portfolio growth were involved in very few cases.
The banking crisis started manifesting itself in 2007. From 2001-2007, as Figure 1
enforcement actions related to troubled loans ranged from
, after the horses had already fled from the barn, these actions jumped
to 30 in 2009 and 34 in 2010.
This study has provided empirical evidence that the Fed was, at best, seriously
feasant at worst, in controlling the abuses perpetrated by
mortgage lenders that caused the subprime debacle. The Fed was fully aware of
mortgage lending abuses as early as 2001 (see Appendix). The Fed’s
ignoring of risky practices was partially caused by the rabid
philosophical and political abhorrence of Chairman Alan Greenspan and some
Republican administrations to federal regulation. Another well-meaning, but
ultimately destructive, cause was the federal government’s social and economic
ordinary Americans in achieving the American Dream of home
A prime example of “no good deed goes unpunished.”
It was interesting to discover that most of the enforcement actions taken against
banks for lending deficiencies were small local or regional banks. Even though
few large banks were sanctioned by the Fed (Bank of America, J.P. Morgan
Chase, Citigroup), the fact remains that many other of the largest lenders
Countrywide, among others), were not even on the Fed’s
The Fed had the authority under its charter to “regulate home mortgages,” but the
evidence is overwhelming that it failed to do so.
distribution of enforcement actions across the states seems
hile is difficult to draw any definitive conclusions concerning
the state distribution of loan enforcement actions, it is worth noting that during the
relevant period covered by the study, Florida had the most (14) followed by
Illinois (8), Montana (8), Ohio (7) and Missouri (7). Montana may simply be an
anomaly, but one can speculate about the other states. Many real estate
speculators may have been interested in Florida, while Illinois and Ohio may have
high percentages of lower income citizens.
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 8
It should be noted that each Fed enforcement action against a specific bank
focused on multiple, categories simultaneously, though changing from case to case.
actions related to categories including board oversight, lending and credit
administration, loan policies, procedures and administration, asset improvement,
compliance with laws and regulations, and, allowances for loans and lease losses were
requently. Some enforcement action categories like loan syndication, debt
and stock redemption, and portfolio growth were involved in very few cases.
2007, as Figure 1
ranged from 2 to 7.
, after the horses had already fled from the barn, these actions jumped
at best, seriously
perpetrated by
The Fed was fully aware of
Fed’s purposeful
caused by the rabid
philosophical and political abhorrence of Chairman Alan Greenspan and some
meaning, but
s social and economic
ordinary Americans in achieving the American Dream of home
t of the enforcement actions taken against
Even though a
few large banks were sanctioned by the Fed (Bank of America, J.P. Morgan
largest lenders
, were not even on the Fed’s
The Fed had the authority under its charter to “regulate home mortgages,” but the
distribution of enforcement actions across the states seems
hile is difficult to draw any definitive conclusions concerning
n enforcement actions, it is worth noting that during the
Florida had the most (14) followed by
Illinois (8), Montana (8), Ohio (7) and Missouri (7). Montana may simply be an
anomaly, but one can speculate about the other states. Many real estate
llinois and Ohio may have
Now and Beyond
The mortgage system in the USA has to be markedly and radically improved. The
Obama administration has attempted to accomplish this through the
2010. The legislation as initially proposed
step by Congressional Republicans. The Republicans
their well- heeled constituents
bankers, hedge fund managers, and the insurance and credit card industries. The list of
opponents to meaningful reform
enforcement of existing laws and regulations
was about to be gored. A much watered
enacted, which contains numerous additional protections for current and prospective
mortgage borrowers.
Werrett (2009) has suggested that an effective long term financial solution must
possess three fundamental characteristics: (a) the solution must be focused on mortgage
reform, (b) the solution must be deployed on a federal level to achieve consistency and
immediacy, and (c) capital reserves, whether accumulated by institutions, industries,
government, or insurance companies must be an essential element.
In creating a better mortgage system, s
supervisory and monitoring funct
compliance authority. Determine whether each agency failed in its mandate to regulate
the lending business, thereby being guil
defined “nonfeasance” as the “fai
when an official fails to perform his official duty” (Ibid p 215)
are located, remedial solutions should be put in place by law or federal administrative
action.
References
Cox, P. (Fall 2009). “A New Horizon:
Predictions: The Importance of Deceptive Practice Enforcement on Financial
Institution Regulation.”
Di Lorenzo, V. (Fall 2009). “Effects on the Ground: Social Upheaval or Net Social
Benefits? Unsafe loans in a Deregulated U.S. Mortgage Market.”
Review 154.
Engel. K.C. and McCoy, P.A. (2011).
Failure, and Next Steps
Federal Reserve Board.
Maman, S. “New Tools for Combating Unfair, Deceptive, and Abusive Mortgage
Practices: New Amendments to Regulation Z, 21 Loy.”
194.
National Commission on the Causes of the Financial and
States. (2011). The Financial Crisis Inquiry Report
Razaki, K. A., Koprowski, W., Alonzi, P., and Irons, R. (2010). “Centering the business
capstone course on the banking crisis: concrete integrated
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
The mortgage system in the USA has to be markedly and radically improved. The
Obama administration has attempted to accomplish this through the Dodd-Frank
as initially proposed was bitterly contested, tooth and nail,
step by Congressional Republicans. The Republicans have been protecting the interests of
constituents in the financial industry, like mortgage and investment
bankers, hedge fund managers, and the insurance and credit card industries. The list of
to meaningful reform included all parties who had exploited lax Fed
existing laws and regulations and now feared that their economic
A much watered-down piece of legislation was eventually
contains numerous additional protections for current and prospective
(2009) has suggested that an effective long term financial solution must
possess three fundamental characteristics: (a) the solution must be focused on mortgage
reform, (b) the solution must be deployed on a federal level to achieve consistency and
acy, and (c) capital reserves, whether accumulated by institutions, industries,
government, or insurance companies must be an essential element.
In creating a better mortgage system, specific attention should be paid to the
supervisory and monitoring functions of each agency, e.g. their rulemaking, audit, and
compliance authority. Determine whether each agency failed in its mandate to regulate
the lending business, thereby being guilty of a “nonfeasance.” Solomon (2008)
defined “nonfeasance” as the “failure to do an action that is required to be performed, i.e.
to perform his official duty” (Ibid p 215). Once the specific failures
are located, remedial solutions should be put in place by law or federal administrative
A New Horizon: Legal Reforms, New Regulatory Models,
Predictions: The Importance of Deceptive Practice Enforcement on Financial
Institution Regulation.” 30 Pace Law Review 279.
“Effects on the Ground: Social Upheaval or Net Social
Benefits? Unsafe loans in a Deregulated U.S. Mortgage Market.” 30 Pace Law
Engel. K.C. and McCoy, P.A. (2011). The Subprime Virus; Reckless Credit, Regulatory
Failure, and Next Steps. Oxford University Press.
n, S. “New Tools for Combating Unfair, Deceptive, and Abusive Mortgage
Practices: New Amendments to Regulation Z, 21 Loy.” Consumer Law Review
National Commission on the Causes of the Financial and Economic Crisis in the United
The Financial Crisis Inquiry Report. Public Affairs, New York.
Razaki, K. A., Koprowski, W., Alonzi, P., and Irons, R. (2010). “Centering the business
capstone course on the banking crisis: concrete integrated pedagogy.”
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 9
The mortgage system in the USA has to be markedly and radically improved. The
Frank Act of
bitterly contested, tooth and nail, at every
the interests of
nvestment
bankers, hedge fund managers, and the insurance and credit card industries. The list of
Fed
and now feared that their economic cow
legislation was eventually
contains numerous additional protections for current and prospective
(2009) has suggested that an effective long term financial solution must
possess three fundamental characteristics: (a) the solution must be focused on mortgage
reform, (b) the solution must be deployed on a federal level to achieve consistency and
acy, and (c) capital reserves, whether accumulated by institutions, industries,
pecific attention should be paid to the
ions of each agency, e.g. their rulemaking, audit, and
compliance authority. Determine whether each agency failed in its mandate to regulate
ty of a “nonfeasance.” Solomon (2008) has
lure to do an action that is required to be performed, i.e.
specific failures
are located, remedial solutions should be put in place by law or federal administrative
Legal Reforms, New Regulatory Models,
Predictions: The Importance of Deceptive Practice Enforcement on Financial
“Effects on the Ground: Social Upheaval or Net Social
30 Pace Law
The Subprime Virus; Reckless Credit, Regulatory
n, S. “New Tools for Combating Unfair, Deceptive, and Abusive Mortgage
Consumer Law Review
Economic Crisis in the United
. Public Affairs, New York.
Razaki, K. A., Koprowski, W., Alonzi, P., and Irons, R. (2010). “Centering the business
pedagogy.”
Razaki, K., Alonzi, P., and Irons, R. (2010). The Global Economic Crisis and
Interdisciplinary Education.”
Schmudde, D. (2009). “Responding to the Subprime Mess: the New Regulatory
Landscape.” Fordham Journal of Corporate & Financial Law.
Truth in Lending Act, Pub. L. No. 90
Werrett, J. (2009). “Achieving Meaningful Mortgage Reform.”
APPENDIX I
Summary of all Fed enforcement
Year # Actions Loans Board Oversight/
Management Review
2001 23 2
2002 20 6
2003 52 3
2004 38 7
2005 53 3
2006 44 6
2007 40 7
2008 69 14
2009 196 30
2010 264 36
2011 150 14
2012 23 6
972 134
APPENDIX II
Fed Enforcement Actions Related to Loans
2012
1. March 8 Ally Financial
a. Mortgage servicing, loss mitigation and foreclosures
2. March 8 HSBC
a. Mortgage servicing, loss mitigation and foreclosures
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
Alonzi, P., and Irons, R. (2010). The Global Economic Crisis and
Interdisciplinary Education.” Journal of Business and Behavioral Sciences.
Schmudde, D. (2009). “Responding to the Subprime Mess: the New Regulatory
m Journal of Corporate & Financial Law.
Truth in Lending Act, Pub. L. No. 90-321, codified at 15 U.S.C. secs. 1601-1693r.
Werrett, J. (2009). “Achieving Meaningful Mortgage Reform.” Connecticut Law Review
Summary of all Fed enforcement actions by category between 2001 and 2012
Board Oversight/ Money Troubled Terminations Prohibition Flood
Management Review Laundering Banks Orders Insurance
7 6 1 5 0
2 5 1 1 4
16 7 1 3 9
10 9 0 4 6
5 4 1 17 10
1 6 0 17 9
1 4 0 8 10
3 2 23 13 9
23 2 121 8 3
8 2 206 3 3
4 1 111 6 3
0 0 12 3 0
80 48 477 88 66
Related to Loans (starting with most recent)
Ally Financial
Mortgage servicing, loss mitigation and foreclosures
Mortgage servicing, loss mitigation and foreclosures
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 10
Alonzi, P., and Irons, R. (2010). The Global Economic Crisis and
Journal of Business and Behavioral Sciences.
Schmudde, D. (2009). “Responding to the Subprime Mess: the New Regulatory
1693r.
Connecticut Law Review.
actions by category between 2001 and 2012
Flood Other
Insurance
2 0
1 0
12 1
3 3
10 3
3 2
9 1
5 0
8 1
1 0
10 1
0 0
64 12
3. March 8 IMB HoldCo
a. Mortgage servicing, loss mitigation and foreclosures
4. February 9 BOA, Wells Fargo, JP Morgan Chase, Citigroup, Ally Financial
a. Mortgage servicing and foreclosures
2011
1. September 1 Goldman
a. Mortgage servicing, loss mitigation and foreclosures
2. August 2 The First Bank of Baldwin
a. Lending and Credit Admin
3. July 20 Wells Fargo (CA)
a. Fraudulent mortgage lending practices (not requiring signed applications
for borrower’s rep
debt consolidation would improve borrower’s credit, income document
alteration or falsification, steering potential prime borrowers into
nonprime loans
4. July 5 Belt Valley Bank
a. Lending and Credit A
underwriting standards, financial statements, exceptions to loan policy,
continuous loan review)
5. April 13 BOA, Citigroup, Ally Financial, HSBC, MetLife, Wells Fargo, JP
Morgan, PNC Financial, SunTrust, US Bancorp
a. Mortgage servicing and foreclosures
2010
1. December 2 First Community Bank
a. Lending and Credit Admin (standards for appraisal quality, standards for
assessing credit quality of loans, objective and timely assessment of loan
quality)
2. November 23 America’s C
a. Lending and Credit Admin
3. November 18 Farmers State Bank
a. Credit administration (borrower’s repayment ability, current financial
information, value of collateral)
4. September 22 First State Bank of Warner
Lending and credit admin
5. Credit administration (borrower’s repayment ability, current financial
information, value of collateral)
a. Written plan Credit Admin
6. September 7 Bank of Eastern Shore
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
IMB HoldCo
Mortgage servicing, loss mitigation and foreclosures
BOA, Wells Fargo, JP Morgan Chase, Citigroup, Ally Financial
Mortgage servicing and foreclosures
1 Goldman Sachs (NY)
Mortgage servicing, loss mitigation and foreclosures
2 The First Bank of Baldwin (WI)
Lending and Credit Admin
(CA)
Fraudulent mortgage lending practices (not requiring signed applications
for borrower’s representation of income, misrepresentation that mortgage
debt consolidation would improve borrower’s credit, income document
alteration or falsification, steering potential prime borrowers into
nonprime loans
July 5 Belt Valley Bank (MT)
Lending and Credit Admin (borrower repayment, documentation,
underwriting standards, financial statements, exceptions to loan policy,
continuous loan review)
April 13 BOA, Citigroup, Ally Financial, HSBC, MetLife, Wells Fargo, JP
Morgan, PNC Financial, SunTrust, US Bancorp
rtgage servicing and foreclosures
2 First Community Bank (MT)
Lending and Credit Admin (standards for appraisal quality, standards for
assessing credit quality of loans, objective and timely assessment of loan
23 America’s Community Bank (MO)
Lending and Credit Administration (standards for appraisal quality)
18 Farmers State Bank (MT)
Credit administration (borrower’s repayment ability, current financial
, value of collateral)
22 First State Bank of Warner (SD)
credit administration
Credit administration (borrower’s repayment ability, current financial
information, value of collateral) September 16 State Bank Financial (WI)
Written plan Credit Administration (borrower repayment ability)
7 Bank of Eastern Shore (MD)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 11
BOA, Wells Fargo, JP Morgan Chase, Citigroup, Ally Financial
Fraudulent mortgage lending practices (not requiring signed applications
resentation of income, misrepresentation that mortgage
debt consolidation would improve borrower’s credit, income document
alteration or falsification, steering potential prime borrowers into
dmin (borrower repayment, documentation,
underwriting standards, financial statements, exceptions to loan policy,
April 13 BOA, Citigroup, Ally Financial, HSBC, MetLife, Wells Fargo, JP
Lending and Credit Admin (standards for appraisal quality, standards for
assessing credit quality of loans, objective and timely assessment of loan
(standards for appraisal quality)
Credit administration (borrower’s repayment ability, current financial
Credit administration (borrower’s repayment ability, current financial
(WI)
a. Credit Administration
assessing financial strength of borrower, steps to correct deficiencies in loan
documentation)
7. September 2 Oregon Commun
a. Lending and Credit Admin
8. August 26 Guaranty Development Company
a. Credit Risk Management (plan to strengthen credit analysis of borrower
willingness to repay)
9. August 19 MidSouth Bank
a. Lending and Credit Admin
of borrower repayment sources, cash flow and debt service ability)
10. July 28 Farmers State Bank
a. Credit Administration (increase adherence to loan documentation
requirements, borrower ability to repay
11. July 20 Bank VI (KS)
a. Lending and Credit Administration( program for evaluation of collateral,
assess credit quality of loans)
12. June 21 Lincoln County Bancorp
a. Credit Risk Management (plan to strengthen to review risk exposure,
identification and qualification of cr
13. June 14 Castle Rock Bank
a. Credit Risk Management (borrower ability to repay)
14. June 1 Bank of Little Rock
a. Asset Improvement
comprehensive credit analysis of borrower’s willing ness and ability to repay)
15. May12 North Valley Bank
a. Asset Improvement (every loan must be documented that bank performed
comprehensive credit analys
16. May 4 The Northwestern Bank
a. Asset Improvement and Lending and Credit Admin
be documented that bank performed comprehensive credit analysis of
borrower’s willingness and ability to repay)
17. May 3 Paradise Bank
a. Asset Improvement and Lending and Credit Administration (every loan must
be documented that bank
borrower’s willingness and ability to repay
18. May 3 Lake County Bank
a. Lending and Credit Admin
19. April 26 East Dubuque Bancshares Inc.
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
istration (evaluation of cash flow and repayment sources when
assessing financial strength of borrower, steps to correct deficiencies in loan
2 Oregon Community Bank & Trust (WI)
Lending and Credit Administration
26 Guaranty Development Company (MT)
Credit Risk Management (plan to strengthen credit analysis of borrower
willingness to repay)
19 MidSouth Bank (TN)
Lending and Credit Administration (program to require documented analysis
of borrower repayment sources, cash flow and debt service ability)
July 28 Farmers State Bank (SD)
Credit Administration (increase adherence to loan documentation
, borrower ability to repay)
(KS)
Lending and Credit Administration( program for evaluation of collateral,
assess credit quality of loans)
June 21 Lincoln County Bancorp (MO)
Credit Risk Management (plan to strengthen to review risk exposure,
identification and qualification of credit risk)
June 14 Castle Rock Bank (CO)
Credit Risk Management (borrower ability to repay)
June 1 Bank of Little Rock (AR)
ment (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willing ness and ability to repay)
May12 North Valley Bank (OH)
Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willingness and ability to repay)
May 4 The Northwestern Bank (WI)
Asset Improvement and Lending and Credit Administration (every loan must
be documented that bank performed comprehensive credit analysis of
borrower’s willingness and ability to repay)
May 3 Paradise Bank (MT)
Asset Improvement and Lending and Credit Administration (every loan must
be documented that bank performed comprehensive credit analysis of
borrower’s willingness and ability to repay
May 3 Lake County Bank (MT)
Lending and Credit Administration (borrower ability to repay)
April 26 East Dubuque Bancshares Inc. (IL)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 12
(evaluation of cash flow and repayment sources when
assessing financial strength of borrower, steps to correct deficiencies in loan
Credit Risk Management (plan to strengthen credit analysis of borrower
(program to require documented analysis
of borrower repayment sources, cash flow and debt service ability)
Credit Administration (increase adherence to loan documentation
Lending and Credit Administration( program for evaluation of collateral,
Credit Risk Management (plan to strengthen to review risk exposure,
(every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willing ness and ability to repay)
Asset Improvement (every loan must be documented that bank performed
is of borrower’s willingness and ability to repay)
(every loan must
be documented that bank performed comprehensive credit analysis of
Asset Improvement and Lending and Credit Administration (every loan must
performed comprehensive credit analysis of
Lending and Credit Admin
condition, cash flow)
20. April 22 The Bank of Currituck
a. Lending and Credit Admin
condition, cash flow)
21. April 7 FCB Florida Bancorp
a. Asset Improvement (every loan mus
comprehensive credit analysis of borrower’s willingness and ability to repay)
22. March 30 Bank Tennessee Bancshares
a. Lending and Credit Admin (borrower ability to repay, financial condition,
cash flow)
23. March 29 Anchor Commercial Bank
a. Lending and Credit Admin
condition, cash flow)
24. March 25 United Security Bancshares Inc
a. Asset Improvement (every loan must be documented that bank performed
comprehensive credit analy
25. March 25 Coconut Grove Bank
a. Credit administration
26. March 15 First Chicago Bancorp
a. Asset Improvement (every loan must be documented that bank perfor
comprehensive credit analysis of borrower’s willingness and ability to repay)
27. March 10 Idaho Bancorp
a. Credit Risk Management and Credit Admin (borrowers repayment ability,
cash flow, creditworthiness)
28. March 9 Ravalli County Bancshares
a. Lending and Credit Admin
condition, cash flow)
29. February 24 Pacific State Bancorp
a. Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willing ness and a
30. February 17 Community First Bank
a. Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willingness and ability to repay)
31. February 4 Citizens Bancshares
a. Loan Policies and
cash flow, creditworthiness)
32. January 28 Guaranty Bancorp
a. Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willingness and ability
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
Lending and Credit Administration (borrower ability to repay, financial
condition, cash flow)
April 22 The Bank of Currituck (NC)
Lending and Credit Administration (borrower ability to repay, financial
condition, cash flow)
April 7 FCB Florida Bancorp (FL)
Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willingness and ability to repay)
March 30 Bank Tennessee Bancshares (TN)
Lending and Credit Admin (borrower ability to repay, financial condition,
Commercial Bank (FL)
Lending and Credit Administration (borrower ability to repay, financial
condition, cash flow)
March 25 United Security Bancshares Inc. (CA)
Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willingness and ability to repay)
March 25 Coconut Grove Bank (FL)
istration (evaluation of cash flow and repayment sources)
March 15 First Chicago Bancorp (IL)
Asset Improvement (every loan must be documented that bank perfor
comprehensive credit analysis of borrower’s willingness and ability to repay)
March 10 Idaho Bancorp (ID)
Credit Risk Management and Credit Admin (borrowers repayment ability,
cash flow, creditworthiness)
March 9 Ravalli County Bancshares (MT)
and Credit Administration (borrower ability to repay, financial
condition, cash flow)
24 Pacific State Bancorp (CA)
Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willing ness and ability to repay)
17 Community First Bank (IL)
Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willingness and ability to repay)
4 Citizens Bancshares (OK)
Loan Policies and Procedures Administration (borrowers repayment ability,
cash flow, creditworthiness)
28 Guaranty Bancorp (CO)
Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willingness and ability
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 13
borrower ability to repay, financial
(borrower ability to repay, financial
bank performed
comprehensive credit analysis of borrower’s willingness and ability to repay)
Lending and Credit Admin (borrower ability to repay, financial condition,
(borrower ability to repay, financial
Asset Improvement (every loan must be documented that bank performed
sis of borrower’s willingness and ability to repay)
(evaluation of cash flow and repayment sources)
Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willingness and ability to repay)
Credit Risk Management and Credit Admin (borrowers repayment ability,
(borrower ability to repay, financial
Asset Improvement (every loan must be documented that bank performed
bility to repay)
Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willingness and ability to repay)
(borrowers repayment ability,
Asset Improvement (every loan must be documented that bank performed
comprehensive credit analysis of borrower’s willingness and ability to repay)
33. January 26 Northfield Bancshares
a. Lending and Credit Admin
condition, cash flow)
34. January 19 Bank of Virginia
a. Lending and Credit Admin
appraisals)
35. January 12 American Bank of Baxter Springs
a. Credit Risk Management (Strengthen including comprehensive financial
statements, tax returns indicating borrowers’ ability to repay)
36. January 8 North Valley Bancorp
a. Lending and Credit Admin
2009
1. December 24 Centrue Bank
a. Lending and Credit Admin
repay, financial condition, cash flow; standards for incentive comp for loan
originators)
2. December 7 Pierce Cit
a. Loan Policies and Procedures (financial capacity of borrower, cash flow,
sources of repayment, loan to value ratios, cash equity requirements, valuation
of underlying collateral)
3. November 19 Flager Bank
a. Credit Risk Management and Credit
that require documented analyses on an on
guarantor’s repayment sources, global cash flow, creditworthiness, and overall
debt service ability, and the periodic submission of current
statements)
4. November 17 Horizon Bank
a. Lending and Credit Admin
documented analyses on an on
sources, global cash flow, debt service value of collateral)
5. November 10 West Concord Bancshares Inc.
a. Loan Policies and Procedures (financial capacity of borrower, cash flow,
sources of repayment, loan to value ratios, cash equity requirements, valuation
of underlying collateral)
6. November 10 Landmark Financial Hol
a. Credit Administration
debt service value of collateral, standards for interest only loans)
7. November 5 Hanmi Financial Corporation
a. Credit Administration
financial condition, cash flow)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
26 Northfield Bancshares (MN)
Lending and Credit Administration (borrower ability to repay, financial
condition, cash flow)
19 Bank of Virginia (VA)
Lending and Credit Administration (loan to value ratios, standards for
12 American Bank of Baxter Springs (KS)
Credit Risk Management (Strengthen including comprehensive financial
statements, tax returns indicating borrowers’ ability to repay)
8 North Valley Bancorp (CO)
Lending and Credit Administration (standards for interest only loans)
24 Centrue Bank (IL)
Lending and Credit Administration/Asset Improvement (borrower ability to
repay, financial condition, cash flow; standards for incentive comp for loan
7 Pierce City Bancorp (WV)
Loan Policies and Procedures (financial capacity of borrower, cash flow,
sources of repayment, loan to value ratios, cash equity requirements, valuation
of underlying collateral)
19 Flager Bank (FL)
Credit Risk Management and Credit Administration (underwriting standards
that require documented analyses on an on-going basis of the borrower’s and
guarantor’s repayment sources, global cash flow, creditworthiness, and overall
debt service ability, and the periodic submission of current financial
17 Horizon Bank (FL)
Lending and Credit Administration (underwriting standards that require
documented analyses on an on-going basis of the borrower’s repayment
sources, global cash flow, debt service value of collateral)
10 West Concord Bancshares Inc. (MN)
Loan Policies and Procedures (financial capacity of borrower, cash flow,
sources of repayment, loan to value ratios, cash equity requirements, valuation
of underlying collateral)
10 Landmark Financial Holding Company (FL)
istration (the borrower’s repayment sources, global cash flow,
debt service value of collateral, standards for interest only loans)
5 Hanmi Financial Corporation (CA)
istration and Asset Improvement( borrower ability to repay,
financial condition, cash flow)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 14
(borrower ability to repay, financial
(loan to value ratios, standards for
Credit Risk Management (Strengthen including comprehensive financial
(standards for interest only loans)
/Asset Improvement (borrower ability to
repay, financial condition, cash flow; standards for incentive comp for loan
Loan Policies and Procedures (financial capacity of borrower, cash flow,
sources of repayment, loan to value ratios, cash equity requirements, valuation
(underwriting standards
going basis of the borrower’s and
guarantor’s repayment sources, global cash flow, creditworthiness, and overall
financial
(underwriting standards that require
going basis of the borrower’s repayment
Loan Policies and Procedures (financial capacity of borrower, cash flow,
sources of repayment, loan to value ratios, cash equity requirements, valuation
(the borrower’s repayment sources, global cash flow,
wer ability to repay,
8. October 29 West Tennessee Bancshares
a. Lending and Credit Admin
cash flow, debt service)
9. October 14 BOI Financial Corporation
a. Lending and Credit Ad
cash flow, debt service)
10. September 23 Old Southern Bank
a. Lending and Credit Risk Management
documented analyses on an on
sources, global cash flow, debt service)
11. September 17 Security Financial Corporation
a. Lending and Credit Admin
cash flow, debt service)
12. September 17 Century Bank of Florida
a. Lending and Credit Admin
documented analyses on an on
repayment sources, global cash flow,
13. September 10 Tennessee State Bancshares
a. Credit Risk Management
service ability, and current financial statements)
14. September 8 Metro Financial Services Inc
a. Credit Risk Management (borrower’s ability to repay, cash flow, and financial
statements)
15. September 3 Nebraska Bankers’ Bank
a. Loan Policies and Procedures (underwriting standards, documentation,
accuracy of appraisals)
16. August 6 Sterling Bank Inc.
a. Lending and Credit Admin
overall debt service, cr
17. July 30 Buckeye Bancshares
a. Lending and Credit Admin
documented analyses of any collateral and the borrower's and any guarantor's
repayment source, global cash flow, and overall debt service
18. July 30 American Bancorporation
a. Credit Administration
repayment ability)
19. July 29 Sunrise Bank
a. Loan Underwriting/Credit Admin
reduce interest-only loans, borrower cash flow)
20. July 20 PAB Bancshares
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
29 West Tennessee Bancshares (TN)
Lending and Credit Administration (borrower’s repayment sources, global
cash flow, debt service)
14 BOI Financial Corporation (IL)
Lending and Credit Administration (borrower’s repayment sources, global
cash flow, debt service)
23 Old Southern Bank (FL)
ding and Credit Risk Management (underwriting standards that require
documented analyses on an on-going basis of the borrower’s repayment
rces, global cash flow, debt service)
17 Security Financial Corporation (WI)
Lending and Credit Administration (borrower’s repayment sources, global
cash flow, debt service)
17 Century Bank of Florida (FL)
Lending and Credit Administration (underwriting standards that require
documented analyses on an on-going basis of the borrower’s and guarantor’s
ent sources, global cash flow, and overall debt service ability)
10 Tennessee State Bancshares (TN)
Credit Risk Management (borrower’s ability to repay, cash flow, overall debt
service ability, and current financial statements)
8 Metro Financial Services Inc (FL)
Credit Risk Management (borrower’s ability to repay, cash flow, and financial
3 Nebraska Bankers’ Bank (NE)
Loan Policies and Procedures (underwriting standards, documentation,
accuracy of appraisals)
6 Sterling Bank Inc. (NJ)
Lending and Credit Administration (borrower’s ability to repay, cash flow,
overall debt service, creditworthiness)
July 30 Buckeye Bancshares (OH)
Lending and Credit Administration (Underwriting standards that require
documented analyses of any collateral and the borrower's and any guarantor's
repayment source, global cash flow, and overall debt service ability)
July 30 American Bancorporation (MN)
istration/ Asset Improvement (financial condition of borrower,
repayment ability)
(FL)
Loan Underwriting/Credit Administration (financial strength of borrower,
only loans, borrower cash flow)
July 20 PAB Bancshares (GA)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 15
(borrower’s repayment sources, global
(borrower’s repayment sources, global
(underwriting standards that require
going basis of the borrower’s repayment
borrower’s repayment sources, global
(underwriting standards that require
going basis of the borrower’s and guarantor’s
and overall debt service ability)
(borrower’s ability to repay, cash flow, overall debt
Credit Risk Management (borrower’s ability to repay, cash flow, and financial
Loan Policies and Procedures (underwriting standards, documentation,
(borrower’s ability to repay, cash flow,
(Underwriting standards that require
documented analyses of any collateral and the borrower's and any guarantor's
ability)
/ Asset Improvement (financial condition of borrower,
(financial strength of borrower,
b. a. Lending and Credit Admin
documented analyses of any collateral and the borrower's and any guarantor's
repayment source, global cash flow, and overa
21. July 14 Profinium Financial Holdings Inc
a. Loan Policies and Procedures (borrower cash flow and credit analysis,
financial statements)
22. July 6 Amboy Bancorp
a. Credit Risk Management (timely analysis of borrower financial state
ability to service debt, cash flow and collateral)
23. June 10 Sterling Bank
a. Lending and Credit Risk Management (borrower’s ability to repay, cash flow,
financial statements)
24. June 4 Tradition Bancshares Inc.
a. Lending and Credit Admin
documented analyses of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability)
25. April 30 Heritage Bank
a. Lending and Credit Risk Management (Underwriting standards that requi
documented analysis of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability)
26. April 9 San Joaquin Bancorp
a. Loan Policies and Procedures/Asset Improvement (borrower cash flow,
repayment ability, collateral)
27. March 30 BankEast Corporation
a. Lending and Credit Admin
documented analysis of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability)
28. March 27 First State Bank of
a. Lending and Credit Admin
documented analysis of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability)
29. February 3 Sun American Bancorp
a. Asset Improvement (analyze, and document the financial position of the
borrower, including source of repayment, repayment ability, and alternative
repayment sources)
30. February 3 Elmwood Financial Corporation
a. Credit Administration
exceptions)
2008
1. December 17 Truman Bank Corp Inc
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
a. Lending and Credit Administration (Underwriting standards that require
documented analyses of any collateral and the borrower's and any guarantor's
repayment source, global cash flow, and overall debt service ability)
July 14 Profinium Financial Holdings Inc (MN)
Loan Policies and Procedures (borrower cash flow and credit analysis,
financial statements)
July 6 Amboy Bancorp (NJ)
Credit Risk Management (timely analysis of borrower financial state
ability to service debt, cash flow and collateral)
June 10 Sterling Bank (FL)
Lending and Credit Risk Management (borrower’s ability to repay, cash flow,
financial statements)
June 4 Tradition Bancshares Inc. (TX)
Lending and Credit Administration (Underwriting standards that require
documented analyses of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability)
April 30 Heritage Bank (KS)
Lending and Credit Risk Management (Underwriting standards that requi
documented analysis of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability)
April 9 San Joaquin Bancorp (CA)
Loan Policies and Procedures/Asset Improvement (borrower cash flow,
repayment ability, collateral)
March 30 BankEast Corporation (TN)
Lending and Credit Administration (Underwriting standards that require
documented analysis of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability)
March 27 First State Bank of Red Bud (IL)
Lending and Credit Administration (Underwriting standards that require
documented analysis of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability)
3 Sun American Bancorp (FL)
ent (analyze, and document the financial position of the
borrower, including source of repayment, repayment ability, and alternative
repayment sources)
3 Elmwood Financial Corporation (WI)
istration/Asset Improvement (minimize loan documentation
17 Truman Bank Corp Inc. (MO)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 16
(Underwriting standards that require
documented analyses of any collateral and the borrower's and any guarantor's
ll debt service ability)
Loan Policies and Procedures (borrower cash flow and credit analysis,
Credit Risk Management (timely analysis of borrower financial statements,
Lending and Credit Risk Management (borrower’s ability to repay, cash flow,
(Underwriting standards that require
documented analyses of borrower's repayment source, global cash flow,
Lending and Credit Risk Management (Underwriting standards that require
documented analysis of borrower's repayment source, global cash flow,
Loan Policies and Procedures/Asset Improvement (borrower cash flow,
(Underwriting standards that require
documented analysis of borrower's repayment source, global cash flow,
(Underwriting standards that require
documented analysis of borrower's repayment source, global cash flow,
ent (analyze, and document the financial position of the
borrower, including source of repayment, repayment ability, and alternative
cumentation
a. Lending and Credit Administration (minimizing loan documentation
excerptions)
2. November 6 CapitalSouth Bancorp (AL)
a. Lending and Credit Admin
creditworthiness and overall debt service ability, documentation)
3. October 22 Bank of Canton (PA)
a. Lending and Credit Admin
creditworthiness and overall debt service ability, documentation
4. October 16 Americas Bank (MD)
a. Credit Risk Management (creditworthiness and repayment capacity, quality of
appraisals)
5. October 1 Warren Bancorp Inc. (MI)
a. Lending and Credit Admin
sources, documentation of
denial of exceptions to loan documentation)
6. September 23 Community Bank of West Georgia (GA)
a. Lending and Credit Admin
documented analysis of borrower's repayme
creditworthiness and overall debt service ability, borrower’s ability to repay,
periodic borrowers’ financial statements review)
7. September 19 First Georgia Community Corp (GA)
a. Lending and Credit Admin
documented analysis of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability, borrower’s ability to repay,
periodic borrowers’ financial statements review, minimum requirements for
borrower’s equity)
8. September 10 Newnan Coweta Bancshares Inc. (GA)
a. Lending Practices and Credit Admin
require documented analysis of borrower's repayment source, global cash
flow, creditworthiness and overall debt service ability,
repay, periodic borrowers’ financial statements review, documentation of
borrower’s current financial condition and periodic submission of financial
statements, requirements for exceptions to bank’s loan policies)
9. July 25 Capital Corp of the West (CA)
a. Lending and Credit Admin
documented analysis of borrower's repayment source, global cash flow,
creditworthiness)
10. July 14 KCB Bank (MO)
a. Loan Policies, Procedures and Admin
require borrowers to document a clear source of repayment and ability to
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
Lending and Credit Administration (minimizing loan documentation
6 CapitalSouth Bancorp (AL)
Lending and Credit Administration (borrower's repayment source,
creditworthiness and overall debt service ability, documentation)
22 Bank of Canton (PA)
Lending and Credit Administration (borrower's repayment source,
creditworthiness and overall debt service ability, documentation)
16 Americas Bank (MD)
Credit Risk Management (creditworthiness and repayment capacity, quality of
1 Warren Bancorp Inc. (MI)
Lending and Credit Administration (identification of common loan repayment
sources, documentation of loan guarantor repayment capacity, procedures for
denial of exceptions to loan documentation)
23 Community Bank of West Georgia (GA)
Lending and Credit Administration (Underwriting standards that require
documented analysis of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability, borrower’s ability to repay,
periodic borrowers’ financial statements review)
19 First Georgia Community Corp (GA)
Lending and Credit Administration (Underwriting standards that require
documented analysis of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability, borrower’s ability to repay,
periodic borrowers’ financial statements review, minimum requirements for
quity)
10 Newnan Coweta Bancshares Inc. (GA)
Lending Practices and Credit Administration (Underwriting standards that
require documented analysis of borrower's repayment source, global cash
flow, creditworthiness and overall debt service ability, borrower’s ability to
repay, periodic borrowers’ financial statements review, documentation of
borrower’s current financial condition and periodic submission of financial
statements, requirements for exceptions to bank’s loan policies)
p of the West (CA)
Lending and Credit Administration (Underwriting standards that require
documented analysis of borrower's repayment source, global cash flow,
July 14 KCB Bank (MO)
Loan Policies, Procedures and Administration (underwriting standards to
require borrowers to document a clear source of repayment and ability to
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 17
Lending and Credit Administration (minimizing loan documentation
(borrower's repayment source,
(borrower's repayment source,
Credit Risk Management (creditworthiness and repayment capacity, quality of
(identification of common loan repayment
loan guarantor repayment capacity, procedures for
(Underwriting standards that require
nt source, global cash flow,
creditworthiness and overall debt service ability, borrower’s ability to repay,
ndards that require
documented analysis of borrower's repayment source, global cash flow,
creditworthiness and overall debt service ability, borrower’s ability to repay,
periodic borrowers’ financial statements review, minimum requirements for
(Underwriting standards that
require documented analysis of borrower's repayment source, global cash
borrower’s ability to
repay, periodic borrowers’ financial statements review, documentation of
borrower’s current financial condition and periodic submission of financial
(Underwriting standards that require
documented analysis of borrower's repayment source, global cash flow,
ng standards to
require borrowers to document a clear source of repayment and ability to
service their debt; emphasize importance of cash flow analysis rather than
collateral-based lending and ensure that financial statements, tax returns and
other financial data indicating borrower’s capacity to repay the loan are
sufficiently current)
11. April 3 First Pryority Bank (OK)
a. Loan Policies, Procedures and Admin
documentation, guidelines for real estate appraisals, procedures
to loan policies)
12. January 8 Southern Bank of Commerce (AR)
a. Lending and Credit Admin
documented analysis of borrower’s repayment source, creditworthiness and
debt service abilty, clear loan to value
2007
1. August 29 Premier Bank (CO)
a. Lending and Credit Admin
documented analysis of borrower’s repayment source, creditworthiness, cash
flow and debt service ability)
2. August 16 Marco Community Bank (FL)
a. Loan Policies and Procedures (underwriting standards that provide for
analysis of the financial capacity of borrower, documented sources of
repayment, cash flow analysis, cash equity requirements, loan to value ratios,
current valuation of collateral, descri
collateral)
3. August 16 Anadarko B
a. Loan Policies and Procedures (underwriting standards that provide for
analysis of the financial capacity of borrower, documented sources of
repayment, cash flow anal
4. August 8 Marshall BankFirst Corp (MN)
a. Lending and Credit Admin
analysis of the financial capacity of borrower, documented sources of
repayment, cash flow analysis, cash equity requirements, loan to val
current valuation of collateral, description of loan documentation and
collateral)
5. June 19 Mid America Bank and Trust Company (MO)
a. Loan Policies, Procedures and Admin
provide for analysis of the financial ca
of repayment, cash flow analysis)
6. March 23 Cache Valley Bank (U
a. Loan Policies and Procedures ( borrower ability to repay, proper real estate
appraisals)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
service their debt; emphasize importance of cash flow analysis rather than
based lending and ensure that financial statements, tax returns and
al data indicating borrower’s capacity to repay the loan are
sufficiently current)
April 3 First Pryority Bank (OK)
Loan Policies, Procedures and Administration (complete description of loan
documentation, guidelines for real estate appraisals, procedures for exceptions
8 Southern Bank of Commerce (AR)
Lending and Credit Administration (underwriting standards to provide
documented analysis of borrower’s repayment source, creditworthiness and
debt service abilty, clear loan to value limits)
29 Premier Bank (CO)
Lending and Credit Administration (underwriting standards to provide
documented analysis of borrower’s repayment source, creditworthiness, cash
flow and debt service ability)
16 Marco Community Bank (FL)
an Policies and Procedures (underwriting standards that provide for
analysis of the financial capacity of borrower, documented sources of
repayment, cash flow analysis, cash equity requirements, loan to value ratios,
current valuation of collateral, description of loan documentation and
16 Anadarko Bank and Trust Company (OK)
Loan Policies and Procedures (underwriting standards that provide for
analysis of the financial capacity of borrower, documented sources of
repayment, cash flow analysis
8 Marshall BankFirst Corp (MN)
Lending and Credit Administration (underwriting standards that provide for
analysis of the financial capacity of borrower, documented sources of
repayment, cash flow analysis, cash equity requirements, loan to val
current valuation of collateral, description of loan documentation and
June 19 Mid America Bank and Trust Company (MO)
Loan Policies, Procedures and Administration (underwriting standards that
provide for analysis of the financial capacity of borrower, documented sources
of repayment, cash flow analysis)
March 23 Cache Valley Bank (UT)
Loan Policies and Procedures ( borrower ability to repay, proper real estate
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 18
service their debt; emphasize importance of cash flow analysis rather than
based lending and ensure that financial statements, tax returns and
al data indicating borrower’s capacity to repay the loan are
(complete description of loan
for exceptions
(underwriting standards to provide
documented analysis of borrower’s repayment source, creditworthiness and
(underwriting standards to provide
documented analysis of borrower’s repayment source, creditworthiness, cash
an Policies and Procedures (underwriting standards that provide for
analysis of the financial capacity of borrower, documented sources of
repayment, cash flow analysis, cash equity requirements, loan to value ratios,
ption of loan documentation and
Loan Policies and Procedures (underwriting standards that provide for
analysis of the financial capacity of borrower, documented sources of
(underwriting standards that provide for
analysis of the financial capacity of borrower, documented sources of
repayment, cash flow analysis, cash equity requirements, loan to value ratios,
current valuation of collateral, description of loan documentation and
(underwriting standards that
pacity of borrower, documented sources
Loan Policies and Procedures ( borrower ability to repay, proper real estate
7. March 22 North Valley Bank (O
a. Loan Policies, Procedures and
provide for analysis of the financial capacity of borrower, documented sources
of repayment, cash flow analysis)
2006
1. September 11 Exchange Bank of Missouri (MO)
a. Loan Policies and Procedures (underwriting
analysis of the financial capacity of borrower, documented sources of
repayment, cash flow analysis, value of supporting collateral, documentation
regarding credit/appraisals)
2. August 22 Bank of York (AL)
a. Loan Policies, Procedures
provide for source of repayment, repayment ability of borrower, loan
documentation)
3. July 5 Progress Bancshares Inc. (MO)
a. Loan Policies and Procedures (underwriting standards that provide for source
of repayment, repayment ability of borrower, importance of cash flow analysis
and ensure financial statements, tax returns and other financial data indicting
borrower’s capacity to repay the loan are current)
4. March 17 Doral Financial Corporation (PR)
a. Mortgage Portfolios (bank possesses complete and enforceable documentation
that describes true nature of collateral, assessment of overall asset quality of
collateral, expected cash flows and repayment of principal)
5. March 17 First BanCorp (PR)
a. Mortgage Portfolios (bank
that describes true nature of collateral, assessment of overall asset quality of
collateral, expected cash flows and repayment of principal)
6. March 17 R&G Financial Corporation (PR)
a. Mortgage Portfolios (bank
that describes true nature of collateral, assessment of overall asset quality of
collateral, expected cash flows and repayment of principal)
1. July 14 First Citizens Bank (M
a. Loan Policy Compliance and D
documentation and credit information deficiencies and loan policy exceptions
including obtaining accurate and current financial statements and appraisals)
2. April 29 Banco Industrial de Venezuela C.A. (NY and FL)
a. Credit Risk Management (analysis of
flow, earnings and debt service capacity, financial performance, net worth,
guarantees, future prospects, and other factors relevant to the borrower’s
ability to service and retire
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
March 22 North Valley Bank (OH)
Loan Policies, Procedures and Administration (underwriting standards that
provide for analysis of the financial capacity of borrower, documented sources
of repayment, cash flow analysis)
11 Exchange Bank of Missouri (MO)
Loan Policies and Procedures (underwriting standards that provide for
analysis of the financial capacity of borrower, documented sources of
repayment, cash flow analysis, value of supporting collateral, documentation
regarding credit/appraisals)
22 Bank of York (AL)
Loan Policies, Procedures and Administration (underwriting standards that
provide for source of repayment, repayment ability of borrower, loan
July 5 Progress Bancshares Inc. (MO)
Loan Policies and Procedures (underwriting standards that provide for source
ent, repayment ability of borrower, importance of cash flow analysis
and ensure financial statements, tax returns and other financial data indicting
borrower’s capacity to repay the loan are current)
March 17 Doral Financial Corporation (PR)
olios (bank possesses complete and enforceable documentation
that describes true nature of collateral, assessment of overall asset quality of
collateral, expected cash flows and repayment of principal)
March 17 First BanCorp (PR)
Mortgage Portfolios (bank possesses complete and enforceable documentation
that describes true nature of collateral, assessment of overall asset quality of
collateral, expected cash flows and repayment of principal)
March 17 R&G Financial Corporation (PR)
Mortgage Portfolios (bank possesses complete and enforceable documentation
that describes true nature of collateral, assessment of overall asset quality of
collateral, expected cash flows and repayment of principal) 2005
July 14 First Citizens Bank (MT)
Loan Policy Compliance and Documentation Deficiency Corrections (correct
documentation and credit information deficiencies and loan policy exceptions
including obtaining accurate and current financial statements and appraisals)
April 29 Banco Industrial de Venezuela C.A. (NY and FL)
Credit Risk Management (analysis of borrower’s current and stabilized cash
flow, earnings and debt service capacity, financial performance, net worth,
guarantees, future prospects, and other factors relevant to the borrower’s
ability to service and retire its debt)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 19
(underwriting standards that
provide for analysis of the financial capacity of borrower, documented sources
standards that provide for
analysis of the financial capacity of borrower, documented sources of
repayment, cash flow analysis, value of supporting collateral, documentation
(underwriting standards that
provide for source of repayment, repayment ability of borrower, loan
Loan Policies and Procedures (underwriting standards that provide for source
ent, repayment ability of borrower, importance of cash flow analysis
and ensure financial statements, tax returns and other financial data indicting
olios (bank possesses complete and enforceable documentation
that describes true nature of collateral, assessment of overall asset quality of
possesses complete and enforceable documentation
that describes true nature of collateral, assessment of overall asset quality of
possesses complete and enforceable documentation
that describes true nature of collateral, assessment of overall asset quality of
ocumentation Deficiency Corrections (correct
documentation and credit information deficiencies and loan policy exceptions
including obtaining accurate and current financial statements and appraisals)
borrower’s current and stabilized cash
flow, earnings and debt service capacity, financial performance, net worth,
guarantees, future prospects, and other factors relevant to the borrower’s
3. April 25 Civitas BankGroup Inc (TN)
a. Credit Administration
importance of cash flows analysis of borrower and ensure that financial
statements, tax returns and other financial data indicating borrower’s capacity
to repay loan are current, procedures for exceptions t
2004
1. November 18 Ameribanc Holdings (CO)
a. Credit Risk Management (revised loan policies and procedures that consider
information loan policies and procedures
committee to ensure that informed lending decis
accurate credit risk information, compliance with the standards for appraisals,
ensuring borrowers’ compliance with loan covenants and applicable laws and
regulations, determining the financial conditions of borrowers and the
shall take all steps necessary to correct documentation and credit information
deficiencies)
2. October 21 Community State Bank (OK)
a. Credit Risk Management (underwriting standards to assess financial condition
of borrower, analysis of repayment capacity
for loan documentation)
3. August 2 Traders Bank (W
a. Loan Policies and Procedures (underwriting standards that require loan
officers to assess the financial condition of borrower including analysis of
borrower’s repayment
collateral, required loan documentation)
4. June 3 Utah Bancshares (U
a. Loan Administration
assess the financial condition of borrower including anal
repayment capacity, sources of repayment and value of supporting collateral,
cash flow)
5. May 14 Putnam-Greene Financial Corporation (GA)
a. Loan Policies and Procedures (underwriting standards that require loan
officers to assess the financi
borrower’s repayment capacity, sources of repayment and value of supporting
collateral, required loan documentation)
6. March 24 Midwest Bank Holdings (IL)
a. Loan Policies and Procedures (underwriting standards
financial statements of borrower, written cash flow analysis including
sources of repayment and borrower’s ability to repay)
7. Feb 24 Custar State Bank (O
a. Loan Policies and Procedures (underwriting standards regarding current credit
and cash flow, current financials)
2003
1. December 24 Combanc (O
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
April 25 Civitas BankGroup Inc (TN)
istration (underwriting standards for loans that emphasize
importance of cash flows analysis of borrower and ensure that financial
statements, tax returns and other financial data indicating borrower’s capacity
to repay loan are current, procedures for exceptions to loan policies)
18 Ameribanc Holdings (CO)
Credit Risk Management (revised loan policies and procedures that consider
information loan policies and procedures to be provided to the Bank’s loan
committee to ensure that informed lending decisions are based on current and
accurate credit risk information, compliance with the standards for appraisals,
ensuring borrowers’ compliance with loan covenants and applicable laws and
regulations, determining the financial conditions of borrowers and the
shall take all steps necessary to correct documentation and credit information
21 Community State Bank (OK)
Credit Risk Management (underwriting standards to assess financial condition
of borrower, analysis of repayment capacity, value of collateral, requirement
for loan documentation)
2 Traders Bank (WV)
Loan Policies and Procedures (underwriting standards that require loan
officers to assess the financial condition of borrower including analysis of
borrower’s repayment capacity, sources of repayment and value of supporting
collateral, required loan documentation)
June 3 Utah Bancshares (UT)
istration ((underwriting standards that require loan officers to
assess the financial condition of borrower including analysis of borrower’s
repayment capacity, sources of repayment and value of supporting collateral,
Greene Financial Corporation (GA)
Loan Policies and Procedures (underwriting standards that require loan
officers to assess the financial condition of borrower including analysis of
borrower’s repayment capacity, sources of repayment and value of supporting
collateral, required loan documentation)
March 24 Midwest Bank Holdings (IL)
Loan Policies and Procedures (underwriting standards regarding current
financial statements of borrower, written cash flow analysis including
sources of repayment and borrower’s ability to repay)
Feb 24 Custar State Bank (OH)
Loan Policies and Procedures (underwriting standards regarding current credit
ash flow, current financials)
24 Combanc (OH)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 20
(underwriting standards for loans that emphasize
importance of cash flows analysis of borrower and ensure that financial
statements, tax returns and other financial data indicating borrower’s capacity
o loan policies)
Credit Risk Management (revised loan policies and procedures that consider
to be provided to the Bank’s loan
ions are based on current and
accurate credit risk information, compliance with the standards for appraisals,
ensuring borrowers’ compliance with loan covenants and applicable laws and
regulations, determining the financial conditions of borrowers and the Bank
shall take all steps necessary to correct documentation and credit information
Credit Risk Management (underwriting standards to assess financial condition
, value of collateral, requirement
Loan Policies and Procedures (underwriting standards that require loan
officers to assess the financial condition of borrower including analysis of
capacity, sources of repayment and value of supporting
((underwriting standards that require loan officers to
ysis of borrower’s
repayment capacity, sources of repayment and value of supporting collateral,
Loan Policies and Procedures (underwriting standards that require loan
al condition of borrower including analysis of
borrower’s repayment capacity, sources of repayment and value of supporting
regarding current
financial statements of borrower, written cash flow analysis including
Loan Policies and Procedures (underwriting standards regarding current credit
a. Loan Policies and Procedures (underwriting standards regarding current
credit and cash flow, current financials)
2. November 4 Bank of Gassaway (W
a. Loan Policies and Procedures (underwriting stand
employment and income verification, current credit reports and such financial
data necessary to establish borrower’s ability to repay)
3. May 29 NAB Bank (IL)
a. Loan Policies and Procedures (underwriting standards to emphasize
importance of cash flow analysis of borrower and ensure financial statements,
tax returns and other financial data indicating borrower’s capacity to repay,
adequate appraisal and valuation procedures)
2002
1. December 19 Metamore Bancorp Inc. (O
a. Loan Policy (underwriti
financial condition of borrower, value of supporting collateral and financial
strength of guarantor, description of loan documentation and collateral)
2. October 23 United Central Bank (TX)
a. Monitoring exceptio
collateral documentation
3. October 17 O.A.K. Financial Corporation (MI)
a. Underwriting standards that require loan officers to assess financial condition
of borrower, value of supporting collateral, the
description of loan documentation)
4. July 10 Rurban Financial Corp (OH)
a. Loan Policies and Procedures ((underwriting standards to emphasize
importance of cash flow analysis of borrower and ensure financial statements,
tax returns and other financial data indicating borrower’s capacity to repay)
5. July 8 First American Bancorp (OK)
a. Revised Loan Policy (current financial data, borrower’s repayment capacity,
sources of repayment, cash flow, collateral documentation and valuation)
6. Feb 15 Midsouth Bank (AR)
a. Financial condition and repayment capacity of borrower)
2001
1. December 28 First State bank of Warner (SD)
a. Financial condition and repayment capacity of borrower, cash flow, sources of
repayment)
2. December 3 Bank of Little Rock (AR)
a. Financial analysis of borrower financial and income statements cash flow and
debt service capacity)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page
and Procedures (underwriting standards regarding current
credit and cash flow, current financials)
4 Bank of Gassaway (WV)
and Procedures (underwriting standards that require
employment and income verification, current credit reports and such financial
data necessary to establish borrower’s ability to repay)
May 29 NAB Bank (IL)
and Procedures (underwriting standards to emphasize
cash flow analysis of borrower and ensure financial statements,
tax returns and other financial data indicating borrower’s capacity to repay,
adequate appraisal and valuation procedures)
19 Metamore Bancorp Inc. (OH)
Loan Policy (underwriting standards that require loan officers to assess
financial condition of borrower, value of supporting collateral and financial
strength of guarantor, description of loan documentation and collateral)
23 United Central Bank (TX)
Monitoring exceptions to loan policies, maintaining adequate credit and
collateral documentation
17 O.A.K. Financial Corporation (MI)
Underwriting standards that require loan officers to assess financial condition
of borrower, value of supporting collateral, the financial strength of guarantor,
description of loan documentation)
July 10 Rurban Financial Corp (OH)
Loan Policies and Procedures ((underwriting standards to emphasize
importance of cash flow analysis of borrower and ensure financial statements,
rns and other financial data indicating borrower’s capacity to repay)
July 8 First American Bancorp (OK)
Revised Loan Policy (current financial data, borrower’s repayment capacity,
sources of repayment, cash flow, collateral documentation and valuation)
Feb 15 Midsouth Bank (AR)
Financial condition and repayment capacity of borrower)
28 First State bank of Warner (SD)
Financial condition and repayment capacity of borrower, cash flow, sources of
3 Bank of Little Rock (AR)
Financial analysis of borrower financial and income statements cash flow and
debt service capacity)
Journal of Finance and Accountancy
Paucity of Fed enforcement, Page 21
and Procedures (underwriting standards regarding current
ards that require
employment and income verification, current credit reports and such financial
and Procedures (underwriting standards to emphasize
cash flow analysis of borrower and ensure financial statements,
tax returns and other financial data indicating borrower’s capacity to repay,
ng standards that require loan officers to assess
financial condition of borrower, value of supporting collateral and financial
strength of guarantor, description of loan documentation and collateral)
ns to loan policies, maintaining adequate credit and
Underwriting standards that require loan officers to assess financial condition
financial strength of guarantor,
Loan Policies and Procedures ((underwriting standards to emphasize
importance of cash flow analysis of borrower and ensure financial statements,
rns and other financial data indicating borrower’s capacity to repay)
Revised Loan Policy (current financial data, borrower’s repayment capacity,
sources of repayment, cash flow, collateral documentation and valuation)
Financial condition and repayment capacity of borrower, cash flow, sources of
Financial analysis of borrower financial and income statements cash flow and